Tuesday, December 7, 2010

The Ethics of Bribery

During my freshmen year of college, I took a trip with the Marshall School of Business to Dublin to learn about the Irish economy. During the early 2000s, Ireland was categorized as a tiger economy, which is an economy that experiences brief but rapid growth. Since Ireland offers low corporate tax rates, companies like Google and IBM placed European headquarters in the country, and made Ireland a hub for big business. For a time, Ireland enjoyed this prosperity—but it soon came to a halt when the collapse of the U.S. economy triggered a worldwide domino effect. Now, Ireland is unable to pay off debt, and may need to be bailed out by other affluent countries like Germany.

While the Irish government is trying to find ways to decrease the deficit, one startling proposal made by a blogger recommends that Irish officials bribe credit-rating agencies to inflate credit scores in order to keep interest costs on debt payments low. There are deficiencies in this proposal, however; it assumes that a higher credit score will solve all of Ireland’s financial problems. There is no guarantee that bribing a credit agency will bring about the change necessary to get Ireland out of debt. This argument also may not be feasible since bribery is an illegal act, but let’s assume that such a proposal is a viable option for Ireland. In terms of ethics, there are pros and cons.

When doing ethical analysis, there are four models that serve as a framework to structure an argument: utilitarianism in terms of actions, utilitarianism in terms of rules, rights & duties, and virtue. Utilitarianism is the process of weighing benefits and harms, and choosing the option that offers the most benefits for the greatest number of people. Rule-utilitarian thought focuses on benefits and harms created by rules, while act-utilitarian thought calculates the consequences of actions themselves. The rights & duties model chooses the course that respects what others are entitled to (rights) and obligations a stakeholders has to fulfill them (duties). The last model, virtue, chooses the option that enforces good habits of character for yourself and others. Each model can be applied when evaluating whether bribery is ethical or not.

In terms of benefits and harms to the Irish economy, the benefits of bribing credit-rating agencies would have a significant impact. Government would be able to get a handle on its interest payments and pay off debt quicker, without the financial support of other countries. Such benefits would likely reduce unemployment and drastically increase the quality of life for Irish citizens. For this argument, harms are minimal—there is no harm that comes to the credit-rating agencies if no one finds out of such bribery. If discovered, the reputation of the agency may be diminished, but that certainly does not outweigh the benefits associated with helping the 4.5 million citizens of Ireland.

Another argument in favor of bribery has to do with duties. The Irish government has an obligation to do what it takes to ensure the health and happiness of its citizens. While Ireland enjoyed prosperity for a short time in the early 2000s, the government may have made poor choices that led to Ireland’s current financial position. One blogger claims the reason for the crisis stems from government’s decision to guarantee all bank liabilities, a promise that Ireland could not keep. Doesn’t the government then, have a duty to citizens to use whatever means are available to restore the economy to a normal state? If the government has the power to bribe credit-rating agencies to help stimulate the economy, it should fulfill its promise of serving in the best interests of citizens.

While there are ethical arguments in favor of bribery, there are also arguments not in favor. Although the action of the bribery may bring more benefits than harms to the people of Ireland in this particular situation, the rule that forbids bribery brings more benefits than harms in all situations. There are countless historical examples of individuals using bribery as a means to gain power or money that is used for evil; in fact, I argue that there are more examples of bribery used for immorality rather than for good. Because of the benefits that arise from outlawing bribery, it would be unethical for the Irish government to use such tactics, even if it greatly benefited its citizens.

Although the blogger notes that credit-rating agencies are already involved with bribery, it would not be ethical to allow it in this case because it undermines the functional purpose of a credit-rating system. These agencies are created so that investors have a resource to be able to assess the risk with investing in bond markets. By using bribes to enhance credit scores, these scores become biased and are no longer a useful tool for potential investors. There is no way to ethically justify bribery in a credit-rating system because it goes against the very purpose of why such a system exists in an economy.

The most powerful argument against bribery is related to the virtue model. Bribery is a form of corruption that alters a behavior or outcome based on a reward. Rather than encouraging good habits of character, such as hard work and judiciousness, the action teaches individuals to cheat in order to get ahead. By using such a tactic to pay off debt, the Irish government is justifying to citizens that the ends justify the means. Such examples will likely lead to corrupt behavior within the Irish economy, because the government did not fulfill its duty of being a moral representation of the country it administers. If the government engages in bribery, what would stop business owners, politicians, lobbyists, and other stakeholders from doing the same? This would open Pandora’s Box.

Based on my ethical analysis, I believe Daria’s proposal is unethical based on the principles of rule-utilitarian thought and virtue. While there are benefits for Ireland that arise from stimulating the economy, that harms that occur from distorting the credit-rating system as well as encouraging citizens to engage in immoral behavior outweigh such benefits. It may have to rely on neighboring countries to pay off debt, but bribing credit-rating agencies is certainly not the ethical means to solve Ireland’s problems.